Political unrest in Egypt, Israel and Russia costs easyJet shares dear as discount airline cuts back its profit forecast

Budget airline easyJet was counting the cost of unrest and political tensions affecting Israel, Egypt and Russia after its latest trading update prompted the City to scale back forecasts for annual profits.

Shares fell by over 5 per cent as chief executive Carolyn McCall said the airline expected pre-tax profits for the year to the end of September to be in the range of £545million to £570million.

That represents an increase of at least 14 per cent on the year before but City experts had pencilled in a figure of £572million.

Stock drop: easyJet's shares doubled in value in 2013 and rose earlier this year to an all-time high of 1,853p in April but since then the shares have fallen by 27 per cent

Ms McCall said the expected range assumes ‘no further significant disruption’ and ‘includes the impact from the situations in Israel, Egypt and Moscow’.

She said the quarterly performance was ‘solid’ and that the airline was ‘well positioned to continue to deliver sustainable growth and returns’.

EasyJet also said revenue per seat growth at Gatwick had been hit by its increased capacity at the airport after it picked up flying slots from rival Flybe.

But it said there was a significant opportunity over the next two years to drive improvement in revenue performance.

Why glum? CEO Carolyn McColl said the airline's quarterly performance was ¿solid¿ and that the airline was ¿well positioned to continue to deliver sustainable growth and returns¿

Total revenues for the third quarter grew 8.6 per cent compared with the same period last year to £1.24billion and revenue per seat grew by 1.7 per cent to £62.47, or 2.7 per cent at constant currency.

But this was expected to slow to 1 per cent at constant currency for the second half as a whole as capacity grows.

Richard Hunter, head of equities at stockbrokers Hargreaves Lansdown, said while the profits guidance had undershot expectations, the figures showed a ‘very strong quarter’ for easyJet.

Cantor Fitzgerald analyst Robin Byde said: ‘The “miss” on full year guidance is clearly fairly minor and there are mitigating factors from the various political situations, and there is always the possibility that easyJet is being overly cautious.

‘However we think that this outlook statement adds to investor unease that consensus forecasts have generally run ahead.’

EasyJet’s low-fares model has helped it and Irish budget rival Ryanair weather an increasingly competitive European short-haul market, while traditional carriers have struggled.

Air France-KLM, Europe's second-largest traditional network airline, warned this month that its 2014 profit could be as much as 12 per cent lower than previously forecast, mainly due to overcapacity and weak prices.

And Germany's Lufthansa last month lowered its profit targets for the next two years sending shares in easyJet and British Airways and Iberia owner International Airlines Group sharply lower.

In 2013 easyJet's shares doubled in value and rose earlier this year to an all-time high of 1,853p in April but since then the shares have fallen by 27 per cent.

In mid afternoon trading today, EasyJet shares were 5 per cent lower, down 74p to 1,329p.

However, the recent share price weakness and the positive aspects of its third-quarter trading prompted Panmure Gordon to upgrade its rating for the stock to buy from hold with an unchanged target price of 1,800p.

The broker said that third-quarter revenue-per-seat growth of 2.7 per cent at constant currency was ‘solid’, while the airline reduced its cost per seat, excluding fuel and currency movements, by 1.3 per cent year on year, said its performance gave it confidence in future growth.

In a note, analysts at Panmure Gordon said: ‘Even though we are likely to trim our earnings forecasts reflecting the more challenging revenue environment, we remain hugely optimistic about the long-term prospects of this business and the shared look attractively valued.’